KEY POINTS:
Sir Anthony O'Reilly and partners' A$6.20-a-share takeover bid for APN is fair and reasonable, although at the lower end of valuations, says the independent report on the bid.
In the report, Deloitte Corporate Finance also says there is an opportunity to expand the New Zealand Herald's coverage to the South Island.
The report, issued over the weekend, found that the fair market value of APN shares on a full control basis - that is assuming that the whole company was available to be sold - was A$6.18 to A$6.53.
Deloitte concluded that the offer was fair because it fell within its valuation, although it was at the lower end of the range.
O'Reilly's Independent News and Media owns 40 per cent of APN - publisher of the Herald - and is aiming to take over the remainder of the company with private equity firms Providence Equity Partners and Carlyle Group and privatise it.
The offer, which would leave INM with 39.3 per cent of APN, is designed to take advantage of changes to Australian media ownership rules, and will generate money for INM to invest in other markets.
Deloitte also found the bid was reasonable as a better offer was not likely because INM's 40 per cent stake would be a significant deterrent.
It was also unlikely that INM would raise its offer for a third time.
Should the current bid fail, Deloitte said, APN's share price would probably drop to between A$5.15 and A$5.44 - Deloitte's valuation based on APN remaining minority-owned.
The consortium has raised its bid twice from the initial offer of A$6.02 a share because of resistance from shareholders who believed it was too low.
It is not yet known whether last week's increase to A$6.20 will be enough to win over the two Australian investment firms with the biggest stakes in APN - Perpetual Investments with 14.8 per cent and Maple-Brown Abbott with 8.13 per cent.
The offer is built on a scheme of arrangement that will require support of 75 per cent of shares not held by Independent, Carlyle or Providence, giving Perpetual just enough of a stake to block the bid on its own.
Last financial year APN's revenue was A$1.34 billion, Deloitte said.
Regional publishing - provincial newspapers in Australia and New Zealand - contributed A$413 million of that, followed by A$353 million from NZ national publishing and A$250 million from outdoor advertising.
Deloitte said the Herald on Sunday, launched in late 2004, had the largest readership in the Auckland Sunday newspaper market, was close to breaking even and was expected to become profitable. The title contributes 4 per cent of the New Zealand national publishing division's revenue.
The bulk of revenue in the New Zealand national publishing division - 68 per cent - still comes from the New Zealand Herald.
New Zealand magazines - including the New Zealand Woman's Weekly and the Listener - contribute about 9 per cent of the division's revenue.
Commenting on opportunities for New Zealand publishing, Deloitte said the economy's recovery and strong population growth in Auckland should increase advertising revenue. The improving economy would also boost the radio division's advertising revenue.
Deloitte also said APN had the "ability to leverage the New Zealand Herald as a national brand to create a compact version to increase penetration in the South Island".
A letter to shareholders - who will vote on the bid at a meeting late next month in Sydney - from the APN board's independent committee set up to examine the offer said the directors unanimously recommended the proposal and would vote in favour of it with their own shareholdings.
As well as its publishing and radio businesses in Australia and New Zealand, APN has an outdoor advertising business in both countries.
Paper Trail
Deloitte Corporate Finance found the A$6.20 a share takeover offer for APN is:
* Fair and reasonable.
* Within the A$6.18 to A$6.53 fair market value for APN shares, although at the lower end.
* 19 per cent higher than the average APN share price in the month before APN revealed on October 26 it had been approached about a takeover.
